Invest and Reap the Harvest

These are very good times to invest in Indian Stock market. From the Indian perspective, growth in Indian equities is likely to outdo growth in equities of most other countries. The higher GDP is further propelled due to proactive measures taken by the government for inclusive growth. The thrust on rural growth is likely to take India in a different league from the past. We are in a virtuous cycle of high GDP growth led by higher employment, consumption & production growth. However, return from investment in Indian equity is unlikely to be broad based as we live in a global village and most global players are eyeing India to share the cake of the proverbial India growth story.

The debate on India being decoupled to global markets is a myth. It’s myopic to measure the short-term movements in markets to conclude on the decoupling theory. India, as a country can never be decoupled till we continue to share global platform for business and trade. However, it is wise to measure the decoupling theory on sector perspective. For all good reasons, the commodities business excluding aggregates and the IT sector can never be decoupled considering the global competition. On the contrary Indian consumption-led sectors are likely to remain decoupled. The Indian companies’ appetite to expand globally cannot keep them immune to global tremors and hence India may remain very much coupled to global developments.

It was expected that Indian stock market may return 10-12 per cent from 5200-Nifty levels, which is anywhere between 5720-5820 levels. Positive surprise may only happen if monsoon is better than expected and inflation is under control which may prompt benign interest rate scenario.  However, because of higher base, inflation may come down significantly in the later part of the year. A good monsoon, coupled with rising cereals and food prices, may prompt the farmers to work for a still better crop. The Indian growth story remains intact even with rising inflation, as growth without inflation is rarely seen.

On the global market, developed markets have come out of recession and may strengthen going forward. The strength in the Dow Jones and S&P500 suggests improvements in the markets. However, fear of collapse looms large and we know fear is one of the key factors for global market strength. Also, out of the 30 stocks in Dow Jones Industrial, more than top 10 performers in the last three months have their major revenues coming from global emerging markets like India and China. Hence, there is little reason why we should be concerned of rising Dow Jones. Historical facts do not indicate that great crashes have happened in short instances. It took 80 years between 1929 and 2008 for investors to catch the arctic cold!!![PAGE BREAK]

Despite an expectation of nominal return from key Indian indices for CY2010, there are selected mid and small cap stocks to watch. Our top picks remain stocks from construction equipment space like Esab India, Ador Welding, and BEML. Aggregates may give good return with a 2-3 years' perspective. Mid-cap strong brands like LIC Housing Finance, Blue Star, TTK Prestige, Hawkins Cookers, Pidilite, Bata, Bajaj Electricals, Castrol continues to remain our favorite. Himadri Chemicals and Adhunik Metaliks are also among our top picks. Our advice to investors is to invest in SIP to reap the harvest of Indian growth story. Also, every dip in blue chip should be regarded as an opportunity to invest. Similarly take profits from stocks where earnings growth visibility dims and valuation runs forth.